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Float on the Stock Exchange, fund managers tell consultants

Fund managers are urging civil engineering consultancies to consider floating their firms on the London Stock Exchange because they are desperate to invest in the sector.

Schroders told an executive briefi ng last week that it wanted to see more UK civils consultancies on the stock market.

It invests over £263bn worldwide for clients including pension funds, banks and insurance companies.

Co-head of its pan-European small and mid cap team Rosemary Banyard manages funds worth around £4.5bn and she said she was eager to invest in the civils market. “We look for scarcity value, either in what a firm does or on the stock market,” she said.

“And there are not many consultancies on the stock market. I’d say I would like to see more.”

Just six of the top 20 civil engineering consultancies as listed in NCE’s Consultants File 2014 are currently on the London Stock Exchange. The file is published this week. These six are led by Atkins, which Banyard said had been “one of the best performers in the world” over the last year.

Schroders is already the largest shareholder in Atkins, holding around 10% of its shares. Atkins has consistently outperformed its FTSE 250 counterparts since announcing its interim results in June last year. Since then its share price has soared from just under £9 to around £14.40.

Banyard said that performance was driven by the excellent longterm prospects for the sector, with global issues such as ageing infrastructure, climate change mitigation and population growth meaning that engineering skills will be in demand.

But she did warn that a London Stock Exchange listing would leave fi rms vulnerable to takeover by a predator from the US.

“The UK stock market is one of the most active in the world in terms of takeover activity from the US and North America,” said Banyard. “We have to admit we have benefited from the takeover of WSP by Canadian Genivar and Scott Wilson by URS.”

Banyard was speaking at an executive briefing organised by NCE ahead of the NCE/ACE Consultants of the Year awards last Friday.

Earlier, professor of innovation, management & strategy at Manchester Business School Bruce Tether highlighted the potential returns that the sector can offer to investors. Tether’s analysis of submissions to NCE’s Consultants File showed that 15% of fi rms earn more than £100,000 per head, with a median return of £67,000.

Tether also said that consolidation in the market was creating a two-tier industry. He has examined data for NCE’s Consultants File dating back to 2008 and observed that while a consistent 80% of firms have been small to medium sized enterprises with less than 250 employees, on average these firms are getting smaller while the top 20% are getting bigger.

He stressed that if civils consultancy follows that route it is critical that one or two of these global giants remain headquartered in the UK, with the sector providing a trade surplus of £4.4bn in 2012.

Speaking at the Consultants Awards, Association of Consultancy and Engineering chairman Chris Cole said that consolidation of the market through acquisitions would continue and that it was the best thing for the industry. 

Pension problems

Chancellor George Osborne’s decision to scrap the rules that force people to buy an annuity with their pension funds could lead to a massive drop in the private finance available to infrastructure projects.

Co-head of fund manager Schroder UK’s pan European small and mid cap team Rosemary Banyard told an executive briefing last week that the cash available from pension funds could fall by as much as 80%.

“The insurance industry is not going to have as much to invest as it thought it did because of this change in annuities,” she said. Osborne announced that he would be scrapping the annuity rule in his Budget last week.

The new regime comes into force in April 2015 and will affect 13M people investing in defined contribution schemes, who typically have to swap their fund for an annuity – the product that provides a regular income for the rest of an individual’s life. Instead they will be free to take their whole pension as cash.

Banyard said fund managers also remained concerned about the government’s ability to finance major schemes.

“We are very concerned still that the government is not living within its means,” she said. “Health and social security spending looks very intractable indeed and the interest bill on debt alone is set to grow to £53bn next year.”

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